How Short- Term Rental Hosts Are Taxed?

[Cole Simpson]

Nothing stresses out a host more than short-term rental taxes.

A deduction is an expense you spend on your short-term rental business that can lower your taxable income. This is a good thing! The more deductions you report, the lower your taxes are.

Before recognizing what you can deduct, you will need to decide if your property will be taxed under Schedule C (1040) or Schedule E (1040). ⁣

For some STR hosts, rental income is passive income. Passive income falls under Schedule E, which does not subject to self-employment taxes (15.3%).

In certain cases, hosts will need to file a Schedule C to reflect their STR property if it is considered active.

Publication 925 which addresses active businesses states that if the average rental period is less than 7days, a Taxpayer may elect active treatment and file a Schedule C.

Schedule C (1040): You will use Schedule C if your property is your main source of income or is part of a vacation rental business or trade. Schedule C applies to hosts that offer additional services such as daily maid service or linen changes. If your property offers this, the IRS views your rental as a hotel service.⁣
⁣
Schedule E (1040): This form is for hosts whose short-term rentals are passive income, or “a side hustle”, and may not be their primary source of income, or they do not provide hotel-level service. ⁣
⁣
Deduction examples for hosts using Schedule C & E⁣
⁣
- Advertising and marketing⁣
- Auto and travel⁣
- Commissions paid to vacation rental platforms⁣
- Cleaning and maintenance⁣
- Depreciation⁣
- Host service fees⁣
- Legal and professional fees⁣
- Management fees – This is where you write off services like Host Tools that help you automate your short-term rentals!⁣
- Mortgage interest⁣
- Office supplies⁣
- Real estate taxes⁣
- Repairs⁣
- Utilities⁣

Let me know your thoughts!

[Bruce Woodruff]

Not sure what you're trying to do here.....seems like your past bunch of posts are of the informative type that should be either stickies or blogs. Might be a good side job for you to look into.

Asking questions gets a lot more responses than just throwing out info that most of us know.....

Just my .02

[John Underwood]

Quote from @Bruce Woodruff:

Not sure what you're trying to do here.....seems like your past bunch of posts are of the informative type that should be either stickies or blogs. Might be a good side job for you to look into.

Asking questions gets a lot more responses than just throwing out info that most of us know.....

Just my .02

 I agree with Bruce that this looks better suited for a blog.

Good summary though. Many people get confused on this topic. 

[Jason Livdahl]

This is informative! Do you have a list of expenses that might be different between schedule C and E? Anything that can be used for one, but not the other? 

[John Underwood]

I disagree, many things stress me out more than taxes. My CPA tells me how much I owe and I write a check from my petty cash account. No problem.

[Michael Baum]

Apparently he is a CPA giving professional advice. No disclaimer. So I guess it must be accurate?

[Basit Siddiqi]

Yikes, a lot of incorrect information

The more deductions you report, the lower your taxes are.
Not always true

Schedule C (1040): You will use Schedule C if your property is your main source of income
What? Not Accurate

[Bonnie Griffin Kaake]

@Basit Siddiqi I agree with you, there is a lot of misinformation in this post. We see a lot of depreciation schedules and the majority of STR are being done incorrectly by CPAs and other tax professionals. The majority of these STRs, whether passive or active, need to be done on schedule E. NOT on Schedule C. All of them must be depreciated over 39 years, not 27.5. 

[Andrew Thomas Vedder]

Interesting post with good tax information for STRs but I’m not sure it stirs discussion. I’m a novice on tax law so I found it informative. Thank you!